Business Aviation Market Overview – May 2020

What is the current and projected inpact of COVID-19 on Business Aviation flying and tranactions? Rollie Vincent, editor, Market Indicators reflects…

Rolland Vincent  |  04th May 2020
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Rolland Vincent
Rolland Vincent

With 35+ years in the aviation industry, Rolland Vincent, president, Rolland Vincent Associates (RVA)...

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The COVID-19 pandemic is unlike any shock that has hit the Business Aviation industry and, for that matter, our broader national and local economies.

We now know that the deadly virus has been invading our world for several months, going mostly undetected, passing silently and invisibly from unknowing asymptomatic victim to victim.

At press time, the European Centre for Disease Prevention and Control (ECDC) was already recording 2.1 million cases of COVID-19 and 145,000 deaths worldwide, including more than 33,000 in the US alone.

Home to almost six in 10 fixed-wing turbine powered business aircraft worldwide, and with its currency one of the foundations of the global economy, the US is the marketplace that matters more than any other when we think about an eventual recovery in the fortunes of Business Aviation.

Big Hit to Flight Activity

Staggering reductions in business aircraft utilization beginning in mid-March (with business jet cycles off 75-80% YoY just weeks later) reflect the sudden change in marketplace conditions across both the US and Europe.

Driven by work-from-home and stay-at-home initiatives, lockdowns, border controls and quarantines, flight reductions reflect both constrained demand (fewer customers to serve) and limited supply, with reportedly only one in four aircraft in the European fleet in the air during the first half of April.

Simply getting crews into position has become problematic, with the dramatic cutback in commercial airline schedules (in some cases by as much as 90% YoY). It is a wonder that any flights are getting off the ground these days, as trying to efficiently operate an aviation business in this kind of environment must be the definition of madness itself.

GDP Forecasts Portend Gloom

Just released forecasts of 2020 GDP growth for key Business Aviation markets are anything but encouraging.

Although it seems that there are already as many forecasts being posted as there are economists out there, it is clear that growth rates are switching to negative for most of the key Business Aviation markets, including the US, the UK, the Euro Area, Canada, Mexico, Brazil, Australia, Saudi Arabia, Turkey, Russia and South Africa. In a word: “Ouch”.

China and India may eke out some YoY GDP growth in 2020, but collectively they only account for 2.5% of the world’s business jet fleet. After growing at 2.3% in 2019, the US economy is forecasted to contract by 3-6% in 2020, according to a number of forecasters recently polled by The Economist, and reported on April 16.

A ‘Crisis Like No Other’

Describing the COVID-19 global pandemic as a crisis “like no other”, the International Monetary Fund (IMF) issued its latest World Economic Outlook Report in April with a stark warning that it is very likely that the global economy will experience its worst recession this year since the 1930s Great Depression.

The IMF marked down its 2020 global GDP growth forecast by more than 6 percentage points from January to April 2020, a Breath taking revision over such a short period of time.

IMF forecasts for 2021 GDP growth across most of the abovementioned countries are insufficient to claw back this year’s expected drops in economic activity, implying that a recovery could take several years to unfold.

Pre-Owned Business Aircraft Inventory

Business jet inventory ‘for sale’ rose to 9.9% of the in-service fleet at the end of March 2020, representing more than 2,200 jets, according to the latest JETNET records (updated through mid-April 2020).

At the same time, business turboprop inventory ‘for sale’ has remained relatively stable at about 7% of the worldwide fleet, representing ~1,100 aircraft.

Retail whole aircraft and lease transactions – a good measure of end-user demand - were down about 23% worldwide in March 2020 YoY for pre-owned jets, with 318 days-on-market on average for aircraft that did transact, up 22% over March 2019.

The more stable turboprop market continued to hum along, with transactions down just 4%, and days-on-market down 8% in March 2020 versus the same period in 2019. While this performance in the current market is noteworthy, it may not be sustainable for much longer if the COVID-19 crisis endures – particularly in light of the sharp drop in commodity prices and in the value of local currencies against the US dollar.

In Summary…

As recently as the Q1 2020 JETNET iQ Survey of more than 500 business aircraft owners / operators in 59 countries, the most significant challenge that was facing the Business Aviation industry was the availability of adequate numbers of qualified pilots and maintenance technicians.

In the span of the last 30-45 days, this concern has largely (but temporarily) vanished, displaced by an invisible and deadly pandemic that has already disrupted our markets, economies and ways of life.

Navigating safely through the storms of COVID-19 will require the full attention and resources of leadership, now and for the foreseeable future.

Business Aviation leaders must also prepare for a future beyond this crisis, and many are taking care of their people even if it is not easy for them to be taking care of customers.

Although shiny, high-performance aircraft command most of the attention in our industry, this is ultimately a people business. Our people and customers will be needed more than ever when we get through this turbulent period.

Flight Activity – North America

As COVID-19 cases, and associated stay-at-home orders increased, Business Aviation activity has shrunk in North America.

According to ARGUS, March 2020 flight activity saw an overall decrease of 31.7% compared with March 2019. During March, ARGUS has watched normal life come to halt across the planet, Business Aviation included. A review of the first 10 days of March, compared to the same period in 2019, showed that activity was only down about 5% - a company white paper notes – but when states started locking down (around March 15th) activity changed significantly.

“We recorded 56,154 Business Aviation flights from March 11th–17th, but, after nationwide social distancing and shelter in home orders were issued, we saw flight activity for March 18th–24th record 28,899 flights; a drop of 46.8%,” the white paper revealed.

“We’re now seeing activity levels that are closer to Christmas day activity, rather than one of the busiest months on the calendar.”

So what does the immediate future hold in store for Business Aviation? ARGUS says it’s unclear, but that there are some indications we’re “not too far from blue skies and tailwinds again”.

“Many estimates assume a peak in COVID-19 cases in the US sometime in April. While we have no way of knowing, the data indicates the sooner the better for our overall health, the health of our country and the health of Business Aviation.

“The longer this shelter in place and work from home order goes on, the more difficult the restart scenario will be… A later peak also indicates that our recovery is going to be slower because the longer companies are placed on hold burning through cash, the longer it will take to restart,” ARGUS suggests.

April Forecast

Initial predictions for April estimate activity in North America will see a drop of more than 60% YoY “if shelter in place and overall nationwide lockdown orders remain,” but could be less if the situation were to stabilize sooner.

“One factor that will play a significant role in aviation’s resumption will be the idea of opening parts of the country first,” ARGUS’ white paper highlights.

“The situations in New York, Washington and California are dire and show how awful this hidden virus is. Understanding the gravity of the situation in those states, it is unlikely that they will be part of the initial recovery for Business Aviation.

Argus says the industry will need to focus on other top regions – Texas, Florida and Georgia included, which accounted for a combined 21% of all BizAv activity in 2019. “If those three states come back online within the first weeks, following the peak, then our recovery could be faster, but if they lag, the overall industry is going to lag with it."

Flight Activity – Europe

Business Aviation departures from Europe were down by 34% in March 2020 compared with March 2019, according to WingX. Overall, there were 17,800 fewer flights flown Month-over-Month, and declines accelerated towards the end of the month.

Activity in Italy has been most affected, with just over 1,000 departures during the entire month (70% below March 2019 activity). And activity in France, normally the busiest market, was down by 43%. Germany and Switzerland each saw declines of over 30%, while flights in the UK fell by 23%.

Bucking the trend, and over the whole month, flights in Sweden were up 1.3%.

All aircraft segments have seen severe declines, with Ultra-Long-Range aircraft most impacted and operations down by 40%. Branded charter and private flight departments cut back activity by 20% in March, whilst aircraft management companies registered a 50% fall in flight activity.

Meanwhile, air ambulance traffic more than doubled.

According to WingX’s managing director, Richard Koe, “the abruptness of the decline in Business Aviation activity this month is only comparable to the effect of the Eyjafjallajökull volcano eruption back in 2010 – only with much longer and more severe consequences.

"We expect a trough in flight activity in April, which may see some countries completely shut down flights.

"With an optimistic outlook for ending virus containment, we might see renewed demand for flights by the Summer, at which point Business Aviation may have a window of opportunity to meet pent-up demand whilst the airline capacity is still parked.”

Hagerty Jet Group: Slow Return to Normal?

Like the rest of the world, business jet transactions have come to a near halt in the past four weeks. Hagerty Jet Group predicts the return to normal will be slow and gradual.

The industry is faced with many challenges currently. It’s easy for deals to fall apart in this economic environment but it’s much harder to make transactions come together.

Travel restrictions are preventing professionals from performing visual inspections of aircraft. Contracts will undoubtedly take longer as many aviation attorneys are working remotely.

Inspection facilities have availability for pre-purchase inspections, but access to the facilities can be limiting. “We’ve heard tales of financing falling apart at the end of deals and many transactions have cratered over the past few weeks,” Hagerty Jet Group reports.

“The term ‘Force Majuere’ is making its way back into our vocabulary after nearly 10 years following the Great Recession."

“Most business jet buyers and sellers are focused on their families and their businesses right now and for many, the decision to upgrade or sell is low on their list of priorities.”

For Sellers who are motivated and looking for the next buyer, the good news is there is activity - albeit opportunistic buyers who are throwing around offers 20-30% below market value in Q1, Hagerty Jet Group says.

For those on the sidelines with cash ready to make a deal in the short term, the opportunities will be there. Sellers who agree to discounted prices will now want larger deposits and stricter terms and conditions prohibiting buyers from walking away from deals.

“There’s no doubt that aircraft values will be immediately impacted by the current global economic recession. We can’t predict where things will go, but transaction levels won’t be back to normal for at least another year or two,” Hagerty Jet Group concludes.


Is BizAv Better Prepared for COVID-19 Than Financial Crisis?

Business Aviation may be better prepared for the COVID-19 downturn than it was for the 2007 financial crisis, says analyst Brian Foley.

In a matter of days, the Business Aviation community went from optimism over a promising start to the year to a state of bewilderment, uncertainty and anxiety.

While anyone can surmise which way business jet sales and usage are headed, based on the recent avalanche of negative financial news, the industry is arguably in better shape to weather this downturn than it was going into the pummelling 2007-2008 financial crisis. Here’s how…

What’s Different This Time? The Pros

The epicenter of Business Aviation is the US, where 63% of the world’s fleet currently resides, per AMSTAT. Before the turn of events, US stock markets had been at all-time highs and were 67% above 2007 levels (with quarterly corporate profits around a third higher).

The most recent quarterly GDP growth figure was 2.1%, compared to 1.9% in 2007. Meanwhile, manufacturing was improving, job growth strong, consumer strength was meaningful and business investment healthy.

The unemployment level hovered at historic lows. The most important economy to the industry was clearly in better shape before this current downturn than it was in the last.

Congressional reforms to the financial system have required more reserves by banks and tighter lending standards, providing added liquidity and reduced credit risk. For those who need to finance or lease a jet, rates are significantly lower than they were back then.

While the backlogs of business jet manufacturers are smaller than in the late 2000s, they aren’t stacked with as many speculators. Some OEMs put added teeth in their contracts since the last downturn, aimed to keep ‘airplane flippers’ out of their books.

While there will inevitably be some cancellations and deferrals, the current order books are stickier.

Business jet deliveries grew a solid 15% in 2019 after being essentially flat over the past decade. Much of the increase was from a bevy of recently introduced new planes, which tend to stir up sales, and will do so into the future.

What’s Different This Time? The Cons

There are admittedly some weaknesses in 2020 compared to before. International markets are weak and will not provide the safety net they once did back when emerging markets were vibrant.

Whereas the Federal Reserve had room to cut interest rates back then, today we’re already essentially at zero, meaning fewer accommodative tools. As it was in 2007, the new jet market is still oversupplied with too many models chasing a finite number of buyers.

The Net Effect of it All?

Few in business aviation will escape the impending downdraft. New and pre-owned sales will all be impacted as buyers wait for some semblance of normality. Reduced business jet utilization will ultimately impact fuel sales (FBO) and maintenance (MRO) activity.

While there has been a recent spike in charter activity due to one-time Carlos Ghosn-style overseas escape plans, that too will taper as fewer onsite meetings occur. Pre-emptive layoffs at smaller firms have already occurred with more public announcements likely to follow.

The industry will undeniably be impacted after 10 years of relatively clear sailing. It’s a cyclical business. But the speed and intensity of the change caught many off guard.

Although there will be casualties, the majority of players have been here before and are survivors, having adapted their businesses to swings in the past.

It is said that the second half of 2020 may be more forgiving, but the wait will admittedly be excruciating. While there’s always a worst-case scenario, it’s possible that the positives going into this downturn will at least help to soften the inevitable blow.

In-Service Aircraft Values & Maintenance Condition

With COVID-19 causing decreased flying, Asset Insight’s March 31 market analysis of 134 fixed-wing models and 2,218 aircraft listed for sale uncovered a 1.2% inventory fleet increase over February’s figure, and a YTD increase to the global tracked fleet of 1.6%.

All four groups contributed to the increase, with Medium Jets leading the way with a 1.8% rise, followed by Turboprops (1.4%), Large Jets (1.3%), and Small Jets (0.4%).

Aircraft Values

During March, the average Ask Price for aircraft in the tracked fleet decreased a nominal 0.5%, primarily owing to a 6.7% drop in Medium Jet pricing.

  • Small Jet pricing increased 3%
  • Turboprops rose 1.7% (setting a 12-month high figure), and
  • Large Jet prices increased nominally 0.1%.

Inventory Fleet Maintenance Condition

The fleet for sale posted a 12-month best (highest) asset quality rating during the month, and the increase in availability resulted in near-term maintenance costs running slightly above the 12-month average.

Asset insight’s tracked inventory registered the following figures:

Quality Rating: The fleet for sale’s Quality Rating stayed within the ‘Excellent’ range, and was virtually unchanged in March at 5.297, compared with February’s 5.295 (on a scale of -2.5 to 10).

Maintenance Exposure:After improving (decreasing) for three consecutive months, Maintenance Exposure (an aircraft’s accumulated/embedded maintenance expense) increased (worsened) 5.5% to $1.399m, meaning upcoming maintenance for the current fleet would be more expensive to complete. But the figure was only slightly greater than the $1.391m 12-month average.

Maintenance Exposure to Ask Price (ETP) Ratio

The ETP Ratio is a useful indicator of an aircraft’s marketability. It is computed by dividing the asset's Maintenance Exposure (the financial liability accrued with respect to future scheduled maintenance events) by its Ask Price.

‘Days on Market’ analysis has shown that when the ETP Ratio is greater than 40%, a listed aircraft’s time on the market increases, usually by more than 30%.

During Q1 2020, assets whose ETP Ratio was 40% or more were listed for sale nearly 68% longer (on average) than aircraft whose Ratio was below 40% (246 Days versus 413 Days on Market).

March analytics revealed that nearly 48% of the tracked models, and over 51% of the tracked fleet, posted an ETP Ratio greater than 40%. March’s fleet ETP Ratio worsened (increased) to 71.1% from February’s 65.4%, a figure that approached both the 12-month worst (highest) Rating of 72% and the record high Rating of 72.3%.

  • Turboprops, for the fourth consecutive month, registered the lowest ETP Ratio at 42.1% (concurrently representing the group’s best 12-month figure for the third consecutive month).
  • Large Jets were a distant second at 64.7%.
  • Medium Jets were next (74.6%).
  • Small Jets worsened (increased) to 90.2%, the group’s 12-month worst figure.

Market Summary

10.3% of the tracked fleet was listed for sale at the end of March. The lowest (best) figure was captured by Turboprops (8.1%), followed by Large Jets (8.8%), Medium Jest and Small Jets (11.3% and 12.0%, respectively).

Large Jets:Our tracked fleet’s inventory increased another six units in March, decreasing (worsening) the group’s Quality Rating to 5.589 from February’s 5.626, but still managing to remain within the ‘Outstanding’ range.

Following suit, Maintenance Exposure worsened (increased) by 5.9%, but that figure was below the group’s 12-month average, while Ask Price rose slightly, 0.1%, to register higher than the group’s 12-month average.

Overall, the group’s ETP Ratio, and its other data-points, continue to demonstrate opportunities for both buyers and sellers to derive value from a large number of inventory assets.

Medium Jets:The group’s Quality Rating remained within the ‘Excellent’ range, even though it lost some ground. Maintenance Exposure improved (decreased) 0.6% to remain at a better-than-average figure.

Medium Jet inventory increased by 11 units, with the new fleet mix lowering the average Ask Price by 6.7%, following February’s 12-month high figure. While the ETP Ratio worsened (increased) in March, the figure is still better than the group’s 12-month average.

With 11.3% of our active (tracked) fleet listed for sale, buyers will more than likely have the advantage.

Small Jets: Inventory increased by only three units in March, but with 12% of the active fleet listed for sale, buyers are in the driver’s seat with respect to this group as well.

With a 1.1% Quality Rating improvement, Small Jets remained within the ‘Very Good’ range. However, the number of near-term maintenance events is projected to be higher, as is the average cost to complete such events, hence the hefty 14.5% Maintenance Exposure increase.

The group did post a 3% Ask Price increase, leading to an above-average figure. But, with an ETP Ratio exceeding 90%, the spread between Ask Price and actual Transaction Value is anticipated to widen if sellers wish to dispose of their aircraft.

Turboprops: Based on the group’s Quality Rating, which decreased slightly but remained within the ‘Very Good’ range, maintenance events are anticipated to be fewer, thanks to the current inventory mix. Unfortunately, those maintenance events are going to cost more to complete (hence the 1.3% increase to Maintenance Exposure).

The news for sellers within this group continues to be positive, though, with Ask Prices rising to a 12-month high, and the ETP Ratio posting a 12-month low (best) figure. While total inventory is still down 14 units from year-end, sufficient selection should be available to please most buyers.


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